Out of Control Policy Blog

Economy Moves Forward in 2nd Quarter...Slowly

The U.S. Deparment of Commerce's Bureau of Economic Analysis released its estimates of 2nd quarter 2010 growth and the results are hardly something to write home about. After churning along at healthy 3.7 percent annual rate in the 1st quarter, spending ratcheted down a notch or two to just 2.4 percent.

Good news appeared to be in the manufacturing sector where inflation adjusted nonresidential fixed investment jumped 17 percent. Spending on equipment and software continued to increase at 21 percent.

But, another significant "contributor" to the growth numbers was federal spending which increased at 9 percent. Nondefense spending--the most redistributive portion of government spending--increased by 13 percent. So, in the growth accounting business, redistributions of funds count as economic growth.

Also, the growth numbers still reflect the distoritionary impacts of policies such as new home buyer tax credits and cash for clunkers gimmicks. So, much of these spending may well be illusory.

Seems to me this is more evidence of an impending "lost decade."

Samuel Staley is Research Fellow


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